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To Tie the Knot or Not

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Author Info
Padma Rao Sahib (University of Groningen)
Xinhua Gu (University of Toronto)
Abstract

This paper introduces imperfect information, learning, and risk aversion in a two sided matching model. The model provides a theoretical framework for the commonly occurring phenomenon of cohabitation followed by marriage, and is consistent with empirical findings on these institutions. The paper has three major results. First, individuals set higher standards for marriage than for cohabitation. When the true worth of a cohabiting partner is revealed, some cohabiting unions are converted into marriage while others are not. Second, individuals cohabit within classes. Third, the premium that compensates individuals for the higher risk involved in marriage over a cohabiting partnership is derived. This premium can be decomposed into two parts. The first part is a function of the individual's level of risk aversion, while the second part is a function of the difference in risk between marriage and cohabitation.

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File URL: http://www.demographic-research.org/volumes/vol6/13/6-13.pdf
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Publisher Info
Article provided by Max Planck Institute for Demographic Research, Rostock, Germany in its journal Demographic Research.

Volume (Year): 6 (2002)
Issue (Month): 13 (May)
Pages: 355-382
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Handle: RePEc:dem:demres:v:6:y:2002:i:13

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Related research
Keywords: class partition; imperfect information; risk; stochastic dominance;

Find related papers by JEL classification:
J1 - Labor and Demographic Economics - - Demographic Economics
Z0 - Other Special Topics - - General

References listed on IDEAS
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  1. Burdett, Kenneth & Coles, Melvyn G, 1999. "Long-Term Partnership Formation: Marriage and Employment," Economic Journal, Royal Economic Society, vol. 109(456), pages F307-34, June. [Downloadable!] (restricted)
  2. Waters, Melissa S. & Ressler, Rand W., 1999. "An economic model of cohabitation and divorce," Journal of Economic Behavior & Organization, Elsevier, vol. 40(2), pages 195-206, October. [Downloadable!] (restricted)
  3. Robert Shimer & Lones Smith, 2000. "Assortative Matching and Search," Econometrica, Econometric Society, vol. 68(2), pages 343-370, March.
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  4. Bloch, Francis & Ryder, Harl, 2000. "Two-Sided Search, Marriages, and Matchmakers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(1), pages 93-115, February.
  5. Burdett, Ken & Coles, Melvyn G, 1997. "Marriage and Class," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 141-68, February.
  6. John Ermisch & Marco Francesconi, 2000. "Cohabitation in Great Britain: not for long, but here to stay," Journal Of The Royal Statistical Society Series A, Royal Statistical Society, vol. 163(2), pages 153-171. [Downloadable!] (restricted)
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